Softbank eyes return to Flipkart


Good morning,

Three years after SoftBank sold its stake in Flipkart for $4 billion, the two companies could be headed for a $600-700 million reunion.

Also in this letter:

  • ‘We’ll remain largest tech investor in India’
  • Interview with RS Prasad on new IT rules
  • Fintech regulations on the anvil?

SoftBank in talks to invest $600-700 million in Flipkart

Softbank

Softbank Vision Fund is eyeing a return to Flipkart, having held talks with the company on a possible $600-700 million investment.

The funding is part of a larger $2 billion round, which could involve sovereign wealth funds such as Abu Dhabi’s ADQ and Canada’s CPPIB, and existing investors such as GIC and Qatar Investment Authority.

The transaction is likely to value the Bengaluru-based firm at $25-30 billion, sources said.

IPO postponed? If the deal goes through, it could lead to Flipkart postponing its plan for an IPO in the US, said a source. The company has been preparing to go public by early next year.

SoftBank’s huge investments in India’s e-commerce companies have reordered the industry. In 2017, it tried to orchestrate a merger between its portfolio firm Snapdeal and rival Flipkart, but the deal was scuppered largely because of opposition from Snapdeal.

It went ahead to back Flipkart, only to sell its entire 21% holding to Walmart a year later for about $4 billion. SoftBank had invested $2.5 billion in Flipkart before its 2018 exit.

Why it needs the cash: Flipkart is pushing to build an ecosystem to compete with Amazon, Reliance and the Tata Group. While it leads in fashion e-commerce with Myntra, the online retailer hasn’t yet created large platforms beyond pure-play retail.

Another business Flipkart is looking to invest heavily in is online grocery. Dominated by BigBasket (now majority-owned by Tata Digital), Grofers (another SoftBank firm) and Amazon, Flipkart’s Supermart has lagged its peers.


‘We are and will remain the largest tech investor in India’

Rajeev Misra

SoftBank Vision Fund has invested $2 billion in India—or about 15-20% the $15-18 billion it has invested globally—in the first five months of 2021, Rajeev Misra, chief executive of the Japanese fund, told us in an interview.

“The key is to find interesting companies where we like the founder and the valuation… Now, the pendulum is swinging a little bit in our favour. Earlier term sheets were flying around, public markets were hot, valuations were crazy. I believe, over the last four years, we have been the largest tech investor in India, and will continue to be that.

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Public vs private markets: Misra said that over the next six or seven months, global stock markets will fluctuate but the private market for technology investing will remain very strong, with plenty of liquidity.

As for the Indian public markets, he said they have been surprisingly resilient. “The Indian public markets despite Covid-19 is in great shape. So Indian tech companies, including our portfolio firms, could go public in India, where they will get better multiples,” he said.

SoftBank-backed Delhivery, Policybazaar and Paytm have IPOs lined up in the next 6-8 months.

Vision Fund II: After the WeWork debacle, SoftBank Vision Fund struggled to raise outside capital amid questions on its strategy of backing loss-making startups at inflated valuations.

  • The second edition of the fund received a corpus commitment of “only” $10 billion from SoftBank itself, with no external sponsors when it launched. This was in stark contrast to the $100 billion it had amassed for its first Vision Fund in 2017.

Though the second fund may not bring external investors immediately, it has already invested $15-20 billion in 70 companies. Its corpus has increased to $30 billion, fully financed by SoftBank.

On Covid-19 impact: “Indian portfolio companies are in pain—I am talking about the personal side. Then there is the business side, where some too are feeling the pain. But businesses like Delhivery, Meesho and Unacademy have had good tailwinds. Most businesses will fix themselves soon,” Misra said.


TWEET OF THE DAY


‘Social media firms have a social, moral responsibility’

Ravi Shankar Prasad


Union Minister of Electronics and IT Ravi Shankar Prasad said media platforms and internet companies must comply with India’s IT rules, as they have a “responsibility” towards users. In an interview with ET, Prasad also said WhatsApp will have to find a technical solution on traceability. Experts from the interview:

Twitter, Facebook and Google have approached courts against the IT rules, arguing that they violate the Right to Privacy of Indian users. Should this be decided in courts or through talks?

These guidelines have not emerged suddenly, there was an overpowering demand from users. There were two Supreme Court judgments — the Prajwala case of 2018 and the Facebook case of the 2019 — which led to this. There was debate in Parliament and I gave a commitment in the Rajya Sabha. The issue is not of the use of social media, but of its misuse.

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What happens if companies do not comply with the rules?

From May 26, the rule kicked in. We had given three months’ notice. Our approach has been firm and persuasive. As per Rule 7, when an intermediary fails to observe these rules, the provisions of Section 79 will not be applicable, which is the safe harbour of intermediary. The intermediary shall be liable for punishment under the Indian Penal Code.

Will you ban companies that do not comply?

I will not discuss what action I will take here. If they are obliged to follow the rules, they must follow.

Read the full interview here.


Now, an inter-regulator fintech regulator

Wallet interoperability


The Financial Stability and Development Council (FSDC) has constituted a first-of-its-kind inter-regulator panel to address the regulatory challenges posed by the fintech industry, two people with direct knowledge of the matter told us.

The constituents: Officials from the Reserve Bank of India, finance ministry, the Securities Exchange Board of India (Sebi) and the Insurance and Regulatory Authority of India (IRDAI). This group will seek better coordination among regulators to deal with fintech companies.

Why it matters: The advent of fintech companies into financial services space has not just disrupted the ecosystem but has started to throw up unique regulatory challenges.

  • A technology platform that sells shares and bonds will be regulated by SEBI and IRDAI, as well RBI on the payments and clearance front.

In one quote: “The fintech space has innovated so much with the structures that nowadays no single regulator has complete control or information about a large fintech entity; hence cooperation within regulators is a welcome step,” said a person privy to the matter. “There has to be a standard procedure in place too between various regulators to deal with Black Swan events.”


INFOGRAPHIC INSIGHT

With SoftBank seeking a return at Flipkart with $600-700 million funding, a look at some of the biggest investments made by the Masayoshi Son-led firm in India so far.

SoftBank Vision Fund-1

ETtech Done Deals

  • Prosus NV has struck a $1.8-billion deal to acquire Stack Overflow, an online community for software developers, in what is seen as the e-commerce and technology giant’s first outright purchase in the edtech space.
  • Wakefit is in talks with L Catterton Fund and other US and Indian investors to raise $40-50 million in primary capital at a valuation of $350-400 million, three people aware of the matter said.
  • Fable Fintech, which operates the online remittance service RemitGuru, has raised an undisclosed amount from Pentathlon Ventures, Paytm and Infibeam, among others.
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Click here for more startup funding and deals news.


WhatsApp is ‘tricking’ users, govt says

India WhatsApp Lawsuit


The government claimed before the Delhi High Court today that WhatsApp is “tricking” millions of its users into accepting its contentious new privacy policy update through push notifications.

  • In an additional counter-affidavit filed in the high court, the government claimed that the messaging app was indulging in “anti-user practices” by obtaining “trick-consent” for its updated privacy policy. It asked the court to stop the messaging app from doing so.

The government alleged that WhatsApp’s plan was to get its entire user base in India to accept its updated privacy policy before the Personal Data Protection Bill became law. India is WhatsApp’s biggest market with around 530 million users, according to data that the government shared while announcing the new IT rules in February.


Top Stories We Are Covering

Internet in India: The number of India internet users is expected to increase by 45% in the next five years to 900 million in 2025, according to the IAMAI-Kantar ICUBE 2020 report. By then, there will be more internet users in rural India than in urban India, Kantar’s executive vice president (insights) Biswapriya Bhattacharjee says.

Crypto in India: HDFC Bank has officially asked customers to ignore its previous communication warning them about dealing in cryptocurrency transactions. RBI clarified earlier this week that banks should not refer to the said circular to caution customers about trading in cryptocurrency.

Startups in India: The government on Thursday said about 170,000 jobs were created by recognised startups in 2020-21. 50,000 startups have been recognised until June 3 by the DPIIT, with most being in the food processing, product development, app development, IT consulting, and business support services sector.


Global Picks We Are Reading

■ Why China’s Most-Hated Internet Company Decided to Play Nice (NYT)

■ Chamath Palihapitiya’s latest SPAC attack targets biotech (Axios)

■ Palantir, DoorDash CEOs Top List of Biggest Pay Packages in 2020 (WSJ)

Today’s ETtech Morning Dispatch was curated by Zaheer Merchant and Tushar Deep Singh in Mumbai.



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